NFO Review of Mahindra Mutual Fund Kar Bachat Yojna
Sep 22, 2016

Author: PersonalFN Content & Research Team

An open-ended equity linked tax saving scheme launched with a primary objective of generating long-term capital appreciation

Summary

Type	An Open Ended Equity Linked Savings Scheme with a 3-year lock-in period	Benchmark Index	Nifty 200
Min. investment:	-Lump sum Rs 500/- and multiples of Rs 500 thereafter - Systematic Investment Plan - Rs 500 and in multiples of Rs 500 thereafter	Plans: Options:	Regular Direct Growth* Dividend Dividend Payout *default option
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.50%
Entry Load	Nil	Exit Load:	Nil (Redemption and Switch Out shall be subject to completion of lock in period of 3 years)
Issue Opens	August 22, 2016	Issue Closes:	October 07, 2016

Investment Objective*

The schemes' investment objective is to generate long term capital appreciation through diversified portfolio of equity and equity related securities.

*Source: Scheme Information Document

Is this fund for you?

Mahindra Mutual Fund Kar Bachat Yojna (MMFKBY) is an open-ended diversified equity linked savings scheme. It is a new offering from Mahindra Mutual Fund, which is also the first equity scheme launched by the fund house. MMFKBY is qualified to offer its investors a deduction of their invested amount of upto Rs 1,50,000/- (as per current tax laws) under section 80C of the Income Tax Act 1961.

Mahindra Mutual Fund is the new entrant in the Indian mutual fund industry. The fund house is sponsored by Mahindra & Mahindra Financial Services Limited, while Mahindra Trustee Company Private Ltd. being the trustee. Mahindra Asset Management Company Private Ltd. is the investment manager of the schemes of the fund house.

How will the fund allocate its assets?

Under normal circumstances, the asset allocation pattern followed by the fund will be as under:

Instruments	Indicative allocations (% of total assets)		Risk Profile High/Medium/Low
Instruments	Minimum	Maximum	Risk Profile High/Medium/Low
Equities and equity related instruments	85	100	High
Debt & Money Market Instruments (including CBLO, Reverse Repo and units of liquid mutual fund schemes)	0	20	Low to Medium

*Source: Scheme Information Document

The asset allocation percentages stated above are only indicative and not absolute.

Being an ELSS, the fund is expected to be fully invested in equities (including cumulative convertible preference shares and fully convertible debentures and company bonds) with a long term view. Under normal circumstances MMFKBY will invest 80% to 100% of its net assets in equities. Further the funds mandate permits investment upto 20% in debt and money market instruments (including CBLO, Reverse Repo and units of liquid mutual fund schemes). The scheme will not invest in any derivative instruments, securitised debt and will not indulge in short selling or stock lending.

What investment strategies will the fund follow?

In the endeavour to achieve the investment objective set out, MMFKBY will follow the below mentioned investment strategy...

For Equity Investments:
Under normal conditions MMFKBY would invest 80-100% of its assets in equity and equity related instruments. It may also invest into cumulative convertible preference shares, fully convertible debentures and bonds of companies. The fund manager will follow an active management style of investing with focus on creating an appropriate diversified portfolio of companies with long term perspective. The scheme would follow top down approach to select sectors and follow bottom up approach while selecting stocks across the sectors based on the growth and value opportunities available across sectors and stocks. It would hold no bias against any particular sector, market capitalisations and categories.

MMFKBY aims to utilise a holistic risk management strategy and aims to manage risks associated with investing in equity markets. The fund house has identified various risks and has designed risk management strategies which would help in managing risks like quality risk, price risk, liquidity risk, volatility risk and event risk..

Quality risk means risk of investing in unsustainable or weak companies
Price risk is the risk of overpaying for a company
Liquidity risk is the high impact cost of entry and exit into a stock
Volatility risk is due to price volatility arising out of company or portfolio specific factors
Event risk is the risk arising out of various company or sector specific events or market event

As it is an open-ended equity scheme, it is expected to have number of subscriptions and redemptions on a daily basis. Due to this there may be an increase in transaction costs such as brokerage paid. The fund manager in such case aims to optimise the portfolio turnover in order to maximise gains and minimise risks. However, the scheme has no specific target relating to the portfolio turnover as it is difficult to estimate the likely turnover with accuracy.

For Debt Investments:
The Fund aims to limit its exposure to debt and cash holdings to up to 20% of its assets, based on the market dynamics. For this purpose, the fund can consider investing in various types of permitted Debt & Money Market Instruments including Certificate of Deposits, Commercial Paper, Bills Rediscounting, Securities issued by Central & State Government, Treasury Bills, Repos & Reverse Repos and Collateralized Borrowing and Lending Obligations (CBLO). The scheme is permitted to invest in debt securities which could be either listed, unlisted, privately placed, secured, unsecured, rated or unrated and of any maturity.

The scheme also has flexibility to invest in other mutual fund schemes managed by the AMC or schemes of any other mutual funds.

Fund Manager Profile

Mr Ratish Varier is the Fund Manager – Equity at Mahindra Asset Management Co. Pvt. Ltd. He has been appointed as the fund manager for MMFKBY. Mr Varier is an MBA in Finance and holds CPM certificate. He has around 10 years of experience in the finance industry. Prior to joining Mahindra Asset Management Co. Pvt. Ltd. in September 2013, he was associated with Reliance Life Insurance Company as Manager - Equities and ICAP Pvt Ltd. as Dealer – Corporate Bonds.

Fund Outlook

After evaluating the fund's objective, investment and portfolio strategy, it is clear that MMFKBY will largely invest in equity & equity related instruments and hold exposure across market capitalisations. But being a diversified equity fund it will not hold any bias for market capitalisations or sectors. Hence its fortune will be closely linked to the performance of broader equity markets.

The fund qualifies for tax exemption under section 80C of the Income Tax Act. So investors may benefit from capital appreciation and tax benefits. As per current tax laws, investments of upto Rs 1,50,000 per financial year can be claimed as deductions. Among tax saving avenues, ELSS or tax saving funds have shortest lock-in period as against other investment products like Public Provident Fund (PPF) or National Savings Scheme (NSC). Also the dividend declared under ELSS is tax-free and no long-term capital gains tax is levied.

Overall, MMFKBY is suitable for aggressive investors looking for tax saving benefits and capital appreciation over longer time frame. The fund is expected to carry high equity related risk while aiming to achieve its investment objective. Given that ELSS carry a lock-in period of 3 years, one should consider investing in ELSS only to meet their financial goals of tax saving.

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

‘PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Disciplinary history

There are no outstanding litigations against the Company, it subsidiaries and its Directors.

Terms and condition on which its offer research report
For the terms and condition for research report click here.

Details of associates

Money Simplified Services Limited;
PersonalFN Insurance Services India Limited ;
Equitymaster Agora Research Private Limited;
Common Sense Living Private Limited;
Quantum Advisors Private Limited;
Quantum Asset Management Company Private Limited;
HelpYourNGO Private Limited;
HelpYourNGO Foundation;
QIEF Management LLC, Mauritius
Natural Streets for Performing Arts Foundation;
Primary Real Estate Advisors Private Limited;
Rahul Goel;
I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest

Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company, except QIS receives fees for providing research to Quantum Equity Fund of Fund (QEFoF) which is Fund of Fund scheme managed by QMF and our associates has financial interest in the subject company.
Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report.
Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront /annualized & trail), if any, for any Schemes by QMF to QIS is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation

Neither QIS nor it's Associates have any compensation from the subject Company in the past twelve months.
Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company in the past twelve months.
Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company in the past twelve months.
Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure

The Research Analyst has not served as an officer, director or employee of the subject Company.
QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Subject Company means Mutual Fund Schemes

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Quantum Information Services Pvt. Ltd. 101, Raheja Chambers, 213, Nariman Point, Mumbai - 400021. Tel: +91 22 6136 1200
Website : www.personalfn.com CIN: U65990MH1989PTC054667